Our Health Care System is Broken

Dean BakerLos Angeles Times, October 9, 2009

[This is the third and final piece in a debate with Maya MacGuineas of the New American Foundation about budget deficits, spending, and the recession. See it in its full context here. The first piece can be found here. The second piece can be found here.]

We should separate the issues of getting the economy on track and fixing our long-term deficit problems. As long as the economy is suffering from excessive levels of unemployment, it would be foolish to take steps that would throw even more people out of work. This kind of fixation on deficit reduction caused President Franklin Roosevelt to throw the economy into a second recession in 1937 as he sought to cut back the stimulus he put in place. We must be careful to avoid the same mistake going forward.

In terms of the long-term deficit problems, it is essential to separate out Social Security, Medicare and Medicaid. According to the Congressional Budget Office, Social Security will be financed fully from its own stream of tax revenue through the year 2048. It is projected to face deficits in subsequent years due to the fact that our children and grandchildren are projected to live longer than we do. We will have to adjust the spending or revenue streams at some point for this program, but it is still a distant problem.

We should also be clear that any cuts any time soon must be completely off the table. Due to the loss of home equity and the plunge in stock prices associated with the collapse of the housing bubble, the vast majority of baby boomers will have almost nothing to support themselves in retirement other than their Social Security benefits.

The problem with Medicare is that our healthcare system is broken; we pay far more than other wealthy countries for our care and get worse outcomes. We don't need to fix Medicare; we need to fix our healthcare system, and this is something we should have started yesterday.

The remedies are actually easy; the problem is that the political will does not exist to challenge powerful vested interests such as the insurance industry, the pharmaceutical industry and the doctors lobbies. Close to 20% (about $500 billion a year) of our healthcare spending is wasted on financing the insurance industry and the paperwork requirements that it imposes on providers.

We pay almost twice as much for prescription drugs as other countries. If we could get our costs in line, it would save us close to $100 billion a year. If drugs were sold in a competitive market without patent protection, we would save more than $200 billion a year. If we paid our doctors the same salaries as those in other wealthy countries, we'd save another $80 billion a year.

All of these changes would be doable if it weren't for the power of special-interest groups in Washington, as we see in the current debate on healthcare reform. If it proves impossible to fix our healthcare system, we can still save a vast amount of money by simply going around it. Why not let Medicare beneficiaries buy into the more efficient healthcare systems of other countries and split the savings? This could save us tens of trillions of dollars over the next few decades. We just need a Congress that isn't scared to stand up to the protectionists and the special interests.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.